City, SDG&E Ready to Ink One Deal While Fighting Over Another
The city isn’t happy that SDG&E stalled new projects to bury power lines underground since the expiration of the franchise fee agreement, which it plans to award to the utility in a new deal this week.
The biggest energy contract San Diego has to offer is on track to go to San Diego Gas and Electric come May 25. But ongoing bickering over increasingly expensive efforts to bury power lines is still a contention point that still wouldn’t be resolved in that contract, which grant monopoly power over the city’s energy grid and has been the subject of tense negotiations for weeks.
The city isn’t happy that SDG&E stalled new projects to bury power lines underground since the expiration of the franchise fee agreement. Allegations spelled out by the San Diego city attorney’s office that the company was overcharging for that work remain unresolved. And the city is still fighting SDG&E in court after the company refused to pay for the cost of moving some equipment so San Diego could build Pure Water, its billion-dollar wastewater recycling system.
In a March memo to the mayor, Councilman Sean Elo-Rivera argued San Diego shouldn’t award the franchise fee contract to a company currently in litigation with the city. The city sued SDG&E for $35.6 million back in January 2020 over Pure Water, claiming the utility should pick up the tab to move its own equipment. That case is still pending in Superior Court.
“The risk is we are entering into an agreement with a company that the city currently believes is in breach of contract,” Elo-Rivera told Voice of San Diego. “What does that say about what our expectations should be for them to abide by the contract we’re potentially entering into this time?”
Once Mayor Todd Gloria took office, he extended the old franchise fee contract with SDG&E for another five months to give his staffers time to negotiate. SDG&E had told the city it would stop working to bury power lines (also called undergrounding) under a program San Diego started to get those lines buried faster. To do that, the city got permission from state regulators years ago to charge residents about $3 a month extra – via their SDG&E bill – to speed up a huge list of undergrounding projects.
The utility contends that since it didn’t have the next signed franchise fee contract in hand, it doesn’t have the authority to collect that money or do the work. (SDG&E did agree to finish out a handful of projects that could feasibly be completed before the contract extension expires on June 1, city spokesman Anthony Santacroce confirmed. Those projects are mostly done and involve contacting each homeowner and completing the new underground connection.)
But SDG&E suspended construction for 10 new projects in October and suspended the design of another five, Santacroce said.
At least one citizen in La Jolla Shores noticed the stalled undergrounding project outside his home in February, saying it looked “abandoned,” according to the San Diego Union-Tribune. (SDG&E Spokeswoman Helen Gao told the Union-Tribune the utility is “committed to completing undergrounding” in La Jolla Shores as fast as possible.)
“That is a little worrisome, that if we have the money to do the projects that they wouldn’t perform them because they’re waiting for franchise agreements” said Councilwoman Marni von Wilpert during a May 10 budget hearing with the city’s transportation staff.
The San Diego city attorney’s office sounded an alarm over undergrounding last year, alleging SDG&E “overcharged” for the work. The city said it would stop paying SDG&E $22.1 million in backlogged invoices, claiming the utility wasn’t providing enough details about the rising cost of that work.
The city manages its own undergrounding program by picking which projects get done when. But the city has to work with SDG&E and local telecommunications companies to fund the projects and coordinate the actual work. SDG&E takes the lead on that, since it covers the whole city and because its electrical needs have priority, Voice of San Diego reported in 2019.
SDG&E undergrounding projects historically cost around $4.5 million per mile of power line, according to the city attorney memo. But the office said it discovered some SDG&E projects exceeded $10 million to almost $20 million per mile. At the time, the city attorney’s office noted there wasn’t a written agreement stipulating how a sped-up undergrounding program should work and that SDG&E didn’t provide enough documentation to justify the charges.
Under the proposed franchise agreement, the details and payment of undergrounding projects would be hashed out only after the Council awards the franchise contract to SDG&E in a separate memorandum of understanding.
The city “may lose leverage” in negotiating the terms of those projects as a result, wrote City Attorney Mara Elliott in a lengthy memo released Thursday.
“The city is giving up its right to unilaterally make decisions that impact its ability to manage its own undergrounding projects,” Elliott wrote.
The mayor’s office said that because the city is currently in a legal battle with the only bidder on the franchise agreement, lawyers from both sides agreed to the language in the proposed terms “to ensure a pathway to resolution and that the new franchises are not held up due to the current dispute,” wrote Jen Lebron, a spokeswoman for the mayor’s office, in an email.
SDG&E declined to comment on Elliott’s memo.
City staff did make some new demands on undergrounding in the proposed franchise agreement. It stipulated that the utility can’t include the “costs of executive incentives and bonuses” for undergrounding work. San Diego also demands SDG&E submit an average “cost per mile” report each year and give the city access to all SDG&E books and records to verify undergrounding expenses.
If the Council approves the franchise agreement on May 25, the two parties may have a brighter future in the face of discord. The new franchise agreement spells out a “dispute resolution clause,” which means instead of suing each other every time there’s a problem, the parties must first work through a neutral mediator.
Correction: An earlier version of this post misstated the month Mayor Todd Gloria took office.